In the league of elite investors, few can rival the late David Swensen, former head of the Yale Endowment. As Chief Investment Officer of this multi-billion dollar fund, he delivered top performance over multiple decades, and his investing style influenced an entire industry. Swensen’s innovative and rigorous approach to asset allocation and expanding its range was revered, with others rushing to replicate it. This approach became known as the “Yale Model”, and revolutionized endowment investing.
Over the span of three decades Swensen took the Yale Endowment from $1.3 billion to over $30 billion, averaging over 12% annual returns along the way. His investment principles were built on the power of diversification to mitigate risk, something he became enchanted with when he first studied under James Tobin, the Nobel Prize winning economist.
So, what lessons can we learn from the legendary investor?
From the onset, Swensen understood that an endowment’s long life significantly enhanced its ability to search for yield beyond public markets. By eliminating the constraints of a reactive, short-term approach, Swensen delved into private assets, which afford greater access to management, and insight into their strategies as well as value drivers. He realized that private assets that required rigorous research and have no active exchange, offered a premium to patient investors that could forgo the need for immediate liquidity. When he started at Yale, the endowment had 75% of its investments in public equities. Seeing higher yields in alternative assets such as private equity, hedge funds, real estate and natural resources – he aggressively shifted the asset mix.
Superior results followed and his track record outpaced peers. Today, public equities are only 16% of Yale’s portfolio with the bulk of its holdings in private equity, hedge funds and real assets.
Reade more at https://www.forbes.com/sites/randybrown/2021/06/02/how-to-invest-like-a-legend/?sh=4437ccf03dd2